Tax bill favors the richest

By Dave DenslowSpecial to the Star-Banner

Tuesday

Jan 2, 2018 at 2:01 AM

U.S. Sen. Bob Corker, a Tennessee Republican and real estate tycoon, opposed the GOP tax bill, holding out against his own party to resist enlarging the nation’s debt. He changed his mind abruptly just after the House-Senate conference committee introduced a change in pass-through provisions.

“This is a bet on our country’s enterprising spirit,” he said, “and that is a bet I am willing to make.”

The change was to allow a new 20 percent deduction for income “passed through” to businesses such as LLCs and S-Corporations even if they pay no substantial wages. Before the change, only businesses with significant wage payments qualified. With the revision, Corker — as pointed out by Josh Keefe in the International Business Times — becomes able to shelter millions in annual rental income. At the time Corker changed his mind, he said, he had not thought about how the change would affect his own wealth.

Other beneficiaries of the conference revision, according to Keefe, include President Donald Trump and his son-in-law, Jared Kushner. Trump values his pass-through properties at more than $527 million. Kushner owns “dozens of income-generating real estate pass-through entities.”

If the bill that emerged from the conference committee eased Corker’s fears about the $1 trillion the tax bill would add to the national debt over the next 10 years, he was misguided. What would you expect to come out of a process with no public hearings and so hurried that lawmakers had to rely on lobbyists to write crucial provisions of the bill? Exactly what surfaced from the committee’s hidden haste: a document so full of loopholes that the loss of revenue will far exceed a trillion.

That’s the consensus of 13 tax attorneys who spent last weekend analyzing the document. Their 30-page report, entitled “The Games They Will Play,” is must reading for tax advisers and for the affluent, showing how the bill, “in ways that are both deliberate and inadvertent,” benefits those who can afford premium advice. Example: If you invest in bonds, set up a corporation so that income is taxed at the 21 percent corporate rate. Example: If you are an architect or engineer, you have been moved to the favored category for tax breaks for pass-through entities. Create one.

Example: If your company owns equipment, set up a shadow corporation to sell it to. The new corporation expenses it, then leases it back to you. Example: If you sell goods to U.S. customers, export them first to a shadow foreign company. That way you claim a lower tax rate. Then your customers buy the products from the shadow foreign company at a lower price. Final example, though there are many, many more: Move your factory abroad, so that you can claim an automatic 10 percent return on foreign investment and avoid U.S. taxes. (As an unintended side-effect, that moves U.S. jobs overseas.)

What’s your guess, that these ploys benefit the poor and the middle-class, or the rich? Obviously the winners are the wealthy, even without considering reduced estate taxes. Not so, claims Kevin Hassett, the chair of Trump’s Council of Economic Advisers. Based on his own research, he says that the corporate tax cut will increase a typical worker’s pay by $4,000 to $9,000. But Jane Gravelle of the Congressional Research Service has devoted her career to studying corporate taxes. Thinking Hassett’s findings theoretically absurd, she corrects his data and statistical flaws, making his results statistically insignificant. We hope that her analysis does not place her job in jeopardy.

Treasury Secretary Steve Mnuchin (net worth: $300 million) said that the tax bill will raise taxes only on those with incomes greater than $1 million. Trump said, “This is going to be one of the greatest gifts for the middle income people of this country that they’ve ever gotten for Christmas.”

To those poor and middle-class kids who are going to have to deal with cutbacks in children’s health insurance and, later in their lives, with the larger national debt and a plutocratic government, Corker, Kushner, Mnuchin, Santa Claus Trump and their rich friends say to you (and to your parents if they voted for draining the swamp) a hearty, “Ho, ho, ho.”

— Dave Denslow is a retired University of Florida economics professor.

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